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Santos ups production guidance for 2025
PERFORMANCE
AUSTRALIAN developer Santos has upped its production outlook for 2025 as it settles into the final phase of a strategy first outlined in 2016 as a means of escaping its heavy debt load.
The company said on December 3 that it had hiked its long-term production guidance from 100mn barrels of oil equivalent to 120mn boe, adding that the new target represented a cumu- lative annual growth rate of more than 8%.
Commenting on the revised production outlook, managing director and CEO Kevin Gallagher said the successful execution of the company’s “transform-build-grow” strategy had positioned it for “disciplined growth”.
“Our strategy has been to establish a disci- plined low-cost operating model that delivers strong cash flows through the oil price cycle. Our 2019 forecast free cash flow breakeven oil price is now around $29 per barrel,” Gallagher said.
Debt see-saw
The company unveiled its three-phase pro- gramme in 2016, after it had racked up around $3.5bn in net debt. The initial goal was to reduce debt by $1.5bn by the end of 2019.
While the company achieved its reduction target half way through 2018, allowing the com- pany to reject a $14.5bn takeover bid earlier in the year from US private equity firm Harbour Energy, its net debt has since ballooned. At the end of 2018, net debt stood at $3.6bn, with a gearing of approximately 33%.
Debt levels have grown in pursuit of the build and grow stages of the company’s long-term plan. For example, Santos announced the 100% acquisition of Quadrant Energy for $2.15bn in April 2018. Quadrant owned 80% of the signifi- cant Dorado oil discovery in Western Australia.
Gallagher said this week that Santos was well positioned to fund growth out of operating cash flow and debt while maintaining gearing levels within the company’s target range. He added that
the company expected to de-gear rapidly after the growth phase.
The company narrowed its production guid- ance for this year to 74-76mn boe from 73-77mn boe as well as its sales volumes guidance to 93-95mn boe from 90-97mn boe.
It lowered its upstream unit production cost guidance for 2019 from $7.25-7.75 per boe to $7.25-7.50 per boe and said capital expenditure would come in at around $1bn, compared with a previous guidance of $950mn to $1.05bn. It expanded its capex projections for 2020 by 45% year on year to $1.45bn, with $500mn of that ear- marked for key growth projects in Australia and Papua New Guinea (PNG).
Chasing growth
Following last year’s Quadrant acquisition, San- tos announced in October that it had acquired ConocoPhillips’ northern Australian business for $1.39bn.
The assets included ConocoPhillips’ 56.9% stake in Darwin LNG and the Bayu-Undan gas field as well as 37.5% of the Barossa develop- ment, which is expected to serve as a back fill for the gas export facility when Bayu-Undan enters end of life status in 2022. Completion of the deal, which is anticipated in the first quarter of 2020, is expected to boost the developer’s output by 25%.
Santos said this week that its “disciplined growth portfolio” included such developments as Barossa natural gas field, the Dorado oilfield, PNG LNG expansion, the ramp up in GLNG’s sales to around 6.2mn tonnes per year from 2020 as well as growth in production from its Cooper Basin assets.
A final investment decision (FID) on Barossa, which is projected to cost $4.7bn to develop, is expceted by the end of the first quarter of 2020.
The company has also raised its forecast for Dorado’s initial oil production from 50,000 bpd to 75,000-100,000 bpd. The oilfield’s develop- ment has been projected to cost $1.9-2.2bn.v
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w w w . N E W S B A S E . c o m Week 48 04•December•2019